Ref. Ares(2020)2890088 - 04/06/2020
2nd ENTSOG Methodology for Cost-Benefit
Analysis of Gas Infrastructure Projects
ENTSOG Roadmap
for future Projects
CBA Assessment
2018
ENTSOG – A FAIR
PARTNER TO ALL !
Accompanying document to ENTSOG 2nd CBA Methodology
Roadmap for future projects CBA assessment
INV0292-18
22 October 2018
For European Commission approval
ENTSOG roadmap for future projects CBA assessment
ENTSOG AISBL; Av. de Cortenbergh 100, 1000-Brussels; Tel: +32 2 894 5100; Fax: +32 2 894 5101; xxxx@xxxxxx.xx
www.entsog.eu, VAT No. BE0822 653 040
Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
ENTSOG has developed the 2nd CBA Methodology in line with the provision of the Regulation
(EU) 347/2013 (hereafter the Regulation).
Based on the experience of TYNDP 2015 and TYNDP 2017 and the 2nd and 3rd PCI selection
processes, ENTSOG has updated and improved the CBA methodology, as foreseen in Article
11.6 of Regulation (EU) 347/2013, in view of its application from TYNDP 2018 onward.
The 2nd CBA Methodology, in its adapted version, is significantly improved from the 1st CBA
Methodology, and also provides strong improvements compared to the draft version 2nd CBA
Methodology submitted by ENTSOG to ACER and the Commission in July 2017. The 2nd CBA
Methodology builds on the opinion issued by ACER on 24 October 2017, the report issued by
Deloitte/Florence School of Regulation in December 20171 (hereafter EC Gas CBA Study), the
opinion by the Commission submitted to ENTSOG on 17 October 2018 and addresses most of
the recommendations stemming from all these documents.
In the specific “Stakeholders feedback”2 accompanying document ENTSOG has mapped how
the ENTSOG 2nd CBA Methodology meets the recommendations received from the ACER
opinion (Opinion No 15/2017), the Commission opinion (C(2018) 6649 Final) and from the EC
Gas CBA study.
Further to the 2nd CBA Methodology, ENTSOG is currently engaged with ENTSO-E in adapting
the Interlinked Model. The Interlinked Model, will represent an additional cross-sectoral
methodological improvement, which once approved will form an additional part of the 2nd
CBA Methodology.
Beyond the CBA Methodology per se, the actual application of CBA Methodology will de facto
be refined over time as part of the successive TYNDP processes. This is seen by ENTSOG as an
opportunity to regularly improve projects CBA assessment, in a timely and efficient manner,
while ensuring proper involvement of stakeholders under the ACER and Commission guidance.
1. Main Improvements of ENTSOG 2nd CBA Methodology and way forward
1 http://fsr.eui.eu/event/gas-cba-2-0-online-consultation/
2 The full title of the document is “Consideration of stakeholders’ feedback in the 2nd CBA Methodology and
main changes compared to the 1st CBA Methodology”.
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Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
It is of importance to distinguish between the CBA methodology itself and its application to
TYNDP. In this respect the 2nd CBA Methodology focuses on the methodological aspects, in
order to provide users with a stable and reliable set of guidelines and principles to be applied
for project assessment within TYNDP or beyond. Such application is expected to evolve over
time. The ENTSOG 2nd CBA Methodology ensures a certain level of flexibility that allows to
cover different user and with different modelling tools.
This section addresses how recommendations from both ACER and the Commission opinion
as well as the EC Gas CBA study have been taken into consideration3. It also points at how the
actual implementation of the CBA Methodology will be further improved, in a timely and
efficient manner, as part of the development process of future editions of TYNDP.
1.1. Increase in transparency
Compared to previous TYNDP editions, the application of the CBA Methodology to TYNDP
foresees the performance of project-specific CBA as part of the TYNDP process for all projects
intending to apply for the PCI label.
This, together with the publication of full project-specific CBA results for all PCI candidates
within the TYNDP following a consistent project fiche format, ensures transparency to all
stakeholders and towards all purposes where PS-CBA can be used.
The 2nd CBA Methodology sets as a requirement that all project promoters provide cost data
when submitting their project to TYNDP. Projects intending to apply for the PCI label are
expected to be assessed on a level-playing-field and to comply with the highest level of
transparency. Taking into account both these elements, for promoters having indicated their
intention to participate in the PCI process and having marked their expected costs as
confidential, for TYNDP 2018 ENTSOG will estimate costs. These costs will be however used
only for publicity purposes since the project-specific assessment will still be based on the data
provided by the promoters.
Additionally, the 2nd CBA Methodology recommends considering an infrastructure level
formed by existing infrastructure and projects with FID status as the reference grid to be used
for the identification of infrastructure gaps and against which to assess projects.
In line with the feedback received from the stakeholders an infrastructure level composed by
existing infrastructure and all projects submitted to TYNDP (called “High infrastructure level”)
3 For more details please refer to the accompanying document “Consideration of stakeholders’ feedback in the
2nd CBA Methodology and main changes compared to the 1st CBA Methodology”.
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Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
was replaced by an infrastructure level considering only existing infrastructures and projects
having an advanced status. This offers a more realistic and complementary assessment of
projects.
Further improvements
(1) ENTSOG will provide with each TYNDP a specific Annex with a clear and transparent
description of how the 2nd CBA Methodology is actually implemented;
(2) As part of the TYNDP process, ENTSOG will develop an approach to the calculation of cost
estimates when declared confidential by the promoters. This will be done already from TYNDP
2018, building on the methodology developed by ACER as part of the Unit Investment Cost
document as well as on collected costs;
(3) In line with the EC Gas CBA Study recommendation on “verification of PCI data”, during
each TYNDP project collection, ENTSOG will verify the information submitted by promoters.
The verification of the submitted data is a process that will be regularly improved in each
subsequent TYNDP edition;
(4) With reference to the Advanced status to be used in the definition of the Advanced
infrastructure level, ENTSOG will look into the definition in concertation with the Commission
and ACER, which may decide to review the criteria for the definition of the advanced status as
part of the TYNDP process. In this case, it will be discussed with stakeholders as part of the
stakeholder engagement process. If modified, criteria for the definition of project status shall
be provided ahead of the relevant TYNDP project data collection.
1.2. Project Grouping Guidelines
In the 2nd CBA Methodology ENTSOG has included principles for the identification of the group
of projects on which running the project specific assessment. This ensures consistency and
transparency in the approach used.
Further improvements
Any future update of those guidelines should be developed in consultation with the
Commission and ACER as part of the future TYNDPs.
1.3. Refined market modelling assumptions
As one of the main expectations from ACER and stakeholders, the 2nd CBA Methodology
provides an enhanced market modelling approach. The Methodology includes an extensive
section that elaborates on market modelling assumptions and provides guidelines for the
inclusion of additional market elements in the assessment. These market elements include in
particular infrastructure tariffs and other commercial provisions such as long-term contracts.
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Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
The 2nd CBA Methodology also stresses the importance to consider LNG as multisource
whenever relevant for the assessment.
The inclusion of such elements has been extensively tested by ENTSOG, in the time period
between the draft and adapted versions of the CBA Methodology. While complex in its
implementation, this significantly enhances the modelling approach stemming from the CBA
Methodology guidelines application.
This improvement meets the short-term and most of the long-term recommendations from
ACER and the Commission opinions and the EC CBA Study. Indeed, it provides guidelines for
the inclusion of tariffs for all types of infrastructures (transmission, LNG terminals and
storages) and for both existing infrastructure and projects.
The 2nd CBA Methodology therefore provides for a robust and consistent framework and clear
guidelines for consideration of market elements in the assessment of the gas system and
projects.
In terms of application, already from TYNDP 2018, the modelling introduces:
The use of tariffs for existing infrastructure, based on data stemming from the
Transparency Platform or collected from LNG terminals and storage operators;
A methodology for modelling of tariffs for projects, with a default case based on the tariffs
for the existing infrastructure complemented by a sensitivity analysis;
The consideration of long-term capacity bookings;
Consideration of LNG as a multi-source supply;
An enhanced approach to supply prices to better reflect import price differentiation.
ENTSOG has prioritised the implementation of the above elements. These elements were
extensively consulted with infrastructure operators and stakeholders.
Further improvements
(1) Building on the experience of TYNDP 2018 first implementation of the new methodology,
further refinements of the market modelling approach (both in terms of tariffs and long-term
capacity bookings) will be handled as part of the development process of next TYNDPs,
ensuring the involvement of stakeholders;
(2) Consideration of long-term supply contracts is already covered by the CBA Methodology.
It has not been implemented in TYNDP 2018 as this information is not public. While it will be
implemented in later editions of the TYNDP, the unavailability of related data is seen as a
serious barrier.
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Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
1.4. A multi-criteria analysis combining CBA and quantitative analysis
The 2nd CBA Methodology recommends combining a monetized CBA with non-monetized
elements into a multi-criteria analysis. This is in line with the best practice followed by other
institutions such as ENTSO-E and REKK.
ENTSOG values quantitative indicators as they provide detailed, understandable and
comparable information independently from monetary values that are inherently uncertain
and unpredictable.
In terms of monetisation and in line with ACER opinion, the 2nd CBA Methodology elaborates
on the monetisation of the following monetary benefits:
Social economic welfare, which benefits from the enhanced market modelling;
Avoided curtailed demand, differentiated between climatic stress, supply stress and
infrastructure stress, and to be monetised using Cost of Disruption of Gas supply (CoDG);
Substitution effect (fuel switching), related to gas displacing another energy in the power
sector or end-use sectors;
Reduction in CO2 emissions, monetised using CO2 market price or alternatively the Social
Cost of Carbon (SCC).
During the public consultation held from 19 May to 16 June 2017, stakeholders were consulted
on possible improvement of the monetisation approach but did not provide further concrete
proposals.
Further improvements
(1) Beyond TYNDP 2018, ENTSOG will continue investigating possible ways to improve the
monetisation of already monetised or currently assessed elements which are only on a
quantitative basis;
(2) In particular, in terms of Cost of Disruption of Gas supply, ACER is currently running a study
on the topic4. The 2nd CBA Methodology allows for considering any relevant value, which could
be the outcome of this study. Consideration of this study to set specific CoDG for upcoming
4 At the time the last version of this document has been drafted.
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Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
TYNDPs will be considered once the study has been published if it achieves a sufficient
consensus among stakeholders;
(3) In regard to the Social Cost of Carbon, ENTSOG intends to investigate values based on
literature review, and will accordingly consult with stakeholders, in view of possible
implementation for the future TYNDPs.
1.5. Indicators simplification
Compared to the 1st edition, the 2nd CBA Methodology focuses on the most relevant indicators
from the perspective of decision-makers and project promoters. Overlapping indicators have
been discarded, preventing from the risk of double counting.
Indicators taking a different perspective to a specific issue have been maintained. Possible
partial overlap has been mapped, and the methodology indicates how to account for them to
avoid double counting.
Further improvements
Based on the experience gained and always considering the requirements set by Regulation
(EU) 347/2013, the scope covered by the different indicators is now well established. Yet the
practice has shown that detailed calculation of these indicators can be improved over time.
ENTSOG is committed to perform such improvement as part of each TYNDP process. For such
changes ENTSOG will seek the advice from the Commission and ACER and will consult
stakeholders. The detailed updated formulae of the indicators will be part of an Annex to the
subsequent TYNDP report.
1.6. Interlinked Model
In line with Article 11.8 of Regulation (EU) 347/2013, The ENTSOs have developed the draft
version of the “consistent and interlinked model” (the Interlinked Model) and have submitted
it to ACER and the Commission for their opinion in December 2016.
A fundamental element of this draft version is the ENTSOs joint scenario development
process. The ENTSOs engaged in this joint process starting from TYNDP 2018. This joint process
has allowed for valuable knowledge sharing between both associations. It has been very much
welcomed by the stakeholder community and has contributed to enlarge the scope of
stakeholders involved in the scenario development process5.
5 In this respect, ENTSOs approach to probability analysis is to define targeted and relevant scenarios (and related
parameters) to be consulted with all stakeholders rather than focusing on Monte Carlo simulations (as per one
of FSR study recommendations). The latter approach would in fact require thousands of simulations to have
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Accompanying document to 2nd ENTSOG CBA Methodology
Roadmap for future projects CBA assessment
For European Commission approval
Further improvements
(1) In addition to this joint scenario process ACER and the Commission have pointed to the
need to investigate further interlinkages. The ENTSOs, recognising this need, have
subsequently launched a Focus Study. Stakeholders will be involved at the different stages of
the study, including through a public consultation and workshop on the conclusions of the
study.
(2) The Focus Study outcomes will be used by the ENTSOs to adapt the Interlinked Model.
Once approved by Commission it will form part of the current CBA Methodology, and will be
applied to relevant projects.
2. Conclusions
The ENTSOG 2nd CBA Methodology provides significant improvements from the 1st edition and
addresses most of the recommendations expressed by ACER and the Commission. It will be
complemented by the ENTSOs Interlinked Model once approved by the Commission.
The CBA Methodology is flexible, ensuring its applicability to future TYNDP editions. Its
application will be regularly updated as part of the TYNDP processes, ensuring stakeholder
consultation.
The actual application of the 2nd CBA Methodology and the above-mentioned further
improvements will be refined over time as part of the successive TYNDP processes.
All the improvements will be elaborated in a transparent manner with the involvement of
stakeholders and under the Commission and ACER guidance.
probabilistic distribution of assessment parameters (e.g. demand) and would replace the joint ENTSOs scenarios
(as per FSR Study recommendation).
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CONTACT
Should you require any further information please contact
Mr Stefano Astorri
Investment Subject Manager (xxxxxxx.xxxxxxx@xxxxxx.xx)
Mr Laurent Percebois
Market Adviser (xxxxxxx.xxxxxxxxx@xxxxxx.xx)
with always in copy
Ms Carmel Carey
Communication Adviser (xxxxxx.xxxxxxxxxxxxx@xxxxxx.xx)
Publisher:
ENTSOG aisbl
Avenue de Cortenbergh 100
1000 Brussels, Belgium
Co-Authors:
Stefano Astorri, Laurent Percebois, Céline Heidrecheid, Louis Watine,
ENTSOG INV WG
Cover picture:
Courtesy of TAP
ENTSOG aisbl
Avenue de Cortenbergh 100
1000 Brussels, Belgium
Tel. +32 2 894 51 00
xxxx@xxxxxx.xx
www.entsog.eu